Abbas has been arranging his new cabinet - which will have seven new ministers - since the previous government resigned amid an ongoing corruption probe and fiscal insolvency in February 2011.

The decision to shake things up in Ramallah came shortly after the PA leadership announced it would hold legislative and presidential elections “in the coming months.”

Abbas previously tasked prime minister Salam Fayyad with forming a new government, but then put the brakes on in April after announced he had negotiated a reconciliation deal with Hamas politburo chief Khaled Mashaal.

The agreement called for the creation of an interim cabinet of independent technocrats selected by the two factions, which would prepare for elections by May 2012.

However, the deal revealed a growing schism between Mashaal's politburo-in-exile and the Hamas leadership in Gaza headed by Ismail Haniyeh, who effectively scuttled the March deal.

Mashaal has tentatively accepted the notion of a state on the 1967 borders, and offered Abbas a one-year mandate for negotiations with Israel – though his fellow politburo members maintain any agreement with Israel will only serve as a “prelude to war.”

However, Haniyeh and his allies maintain that all talks with Israel are “futile” and believes the tide of the Arab Spring will lead to victory in the movement’s armed quest to destroy the Jewish state.

An official familiar with the terms told the Bethlehem-based Maan News Agency that Hamas demanded to keep the key ministries in the new government, including the ministry of interior, and also demanded no change in the structure of security services in the Gaza Strip.

The Interior Ministry controls the Hamas 'security services.' Additionally, the source said Hamas "was not prepared to abandon control of Gaza." In essence, the new terms would allow Hamas to retain sole control over Gaza while giving it a say in the running of PA enclaves in Judea and Samaria.

As a result, Abbas who has rejected Haniyeh's terms, restarted his plan to form a new cabinet without Hamas. According to a source in Fayyad’s office, seven new ministers will take up the portfolios covering health, tourism, national economy, justice, agriculture, transportation and telecommunications.

Majdalani claimed the move to replace the old cabinet instead of bringing in the interim cabinet called for by the unity deal was a not a sign that the reconciliation process had collapsed.

“No, we still hope that the reconciliation will happen. But we need to reshuffle the government to deal with the population’s everyday life,” he said.

Meanwhile, Hamas reacted angrily to news of the new cabinet saying it underscored that the Fatah-Hamas unity deal was going nowhere.